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Worried about falling NPS returns? Here is what you can do

The NPS is meant for individuals looking to save for their retirement goals. Many of them start saving early in the NPS. Short-term volatility, however, cannot be avoided.

June 01, 2022 / 08:29 AM IST

Subscribers to the National Pension Scheme (NPS) are worried about their corpus eroding amid falling prices of stocks, bonds and government securities. Some savvy investors would like to sit out and come back to stock markets at lower levels, but NPS does not allow interim withdrawals.

In this situation the only alternative, experts say, is to take a long-term view and focus on investing in line with your desired asset allocation.

Falling returns

Investors have experienced volatility across asset classes. In NPS, equity, corporate bonds and G-sec schemes have given 6.85 percent, 2.18 percent and 0.27 percent average returns respectively in the year ended May 27, 2022. Equity markets have done well since March 2020 on abundant liquidity. As liquidity is being withdrawn by central banks and inflation is sticky, stock markets have turned volatile. Same is the case with bonds. When central banks, including Reserve Bank of India, cut policy rates to stimulate the economy in the first half of FY2020-2021, the bond markets rallied, generating better returns for fixed-income investors. But as interest rates go up, bond investments are also bleeding.

“Investment avenues in fixed income tend to offer lower returns whereas equities offer relatively higher returns in the long term. Earlier in 2020-2021 we saw exceptional returns from equities. Over a long period of time, the returns converge to their long-term average, which is probably what is happening at this stage,” said Vishal Dhawan, founder and Chief Financial Planner, Plan Ahead Wealth Advisors.


In NPS, equity, corporate bonds and g-sec schemes gave average 62.28 percent, 9.15 percent and 4.87 percent returns, respectively, in the year ended May 28, 2021. Over the long term, investors should expect fixed income to offer around 6 to 7 percent rate of return and equity to offer 12 to 14 percent.

Long-term focus

NPS is meant for individuals looking to save for their retirement goals. Many of them start saving early in the NPS. Short-term volatility cannot be avoided. “The long- term nature of the investment product with lock-in works to the advantage of the investors, especially the newer ones who are inexperienced in handling marker volatility,” said Roshni Nayak, a Securities and Exchange Board of India (SEBI)-registered investment advisor and founder of GoalBridge, a Mumbai-based financial planning firm.

The lock-in period prevents such investors from taking any impulsive sell decisions out of fear, she added

Asset Allocation matters

While many investors opt for ‘auto’ choice of asset allocation which ensures rebalancing asset allocation from time to time in line with their risk profile, it is not the case with investors who choose the ‘active’ choice for deciding their asset allocation in the NPS. Such investors need to keep track of their asset allocation.

“Over a period of time the NPS subscribers’ risk-taking capacity changes and they go closer to their age of retirement. In such cases, they should use such volatile times to correct their asset allocation by switching money from one asset class to another,” said Suresh Sadagopan, founder of Ladder 7 Financial Advisories.

What should you do?

While asset allocation and switches in the context of your desired asset allocation can help you stay the course to save for your retirement, you can take advantage of the current volatile situation. “If you have not invested in NPS yet, this can be a good time to start. For existing investors too, they can contribute more now and benefit in the long term,” said Dhawan. Staggered investments in NPS tend to offer good risk-adjusted returns as you reduce timing risk, like with any other investment product that offers market-linked returns.

If you are to retire in the next couple of years and worried about the current volatility which eats into your corpus, then do not lose heart. Most probably the markets will stabilize by then. You also have the option of postponing your retirement -– withdrawing the corpus from NPS, if you have some other corpus such as Employees’ Provident Fund (EPF) and Public Provident Fund (PPF) in place.

NPS has distinct advantages such as low cost, diversification across asset classes, dedicated tax benefits and long-term orientation, which makes it a strong retirement planning tool. Investors should ignore short-term volatility and focus on long-term benefits. Even if you are investing in avenues such as direct stocks, mutual funds or PPF, NPS can be considered.
Nikhil Walavalkar
first published: Jun 1, 2022 08:28 am
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